Tom McMillan - General Manager and IR Trevor Haynes - President, Chairman and CEO Mike Lambert - EVP and CFO Troy Cleland - EVP and COO Steve Stein - President of Black Diamond Logistics Toby Labrie - SVP of Finance

Dana Benner - Alta Corp Capital Jason Zhang - Cormark Securities Jon Morrison - CIBC World Markets Greg McLeish - GMP Securities Jeff Fetterly - Peters and Company Ian Gillies - First Energy

Good morning. My name is Thomas McMillan, and I'm the General Manager and Investor Relations for Black Diamond. At this time, I would like to welcome participants to Black Diamond's Results Conference Call for the Third Quarter of 2015 with President, Chairman and Chief Executive Officer, Trevor Haynes; and Executive Vice President and Chief Financial Officer, Mike Lambert. We're also joined today by Troy Cleland, Executive Vice President and Chief Operating Officer; Steve Stein, President of Black Diamond Logistics; and Toby Labrie, Senior Vice President of Finance. After our formal remarks, there will be a question-and-answer session. [Operator Instructions] Please note, that while talking about our results and answering questions, we may make forward-looking statements. These statements are subject to known and unknown risks, and future results may differ materially. We will also be discussing non-GAAP financial measures in today's call including adjusted EBITDA, funds available for dividends and pay-out ratio. For more information about these topics, please review the sections of Black Diamond's third quarter 2015 Management's Discussion & Analysis, entitled Forward Looking Statements, Risks and Uncertainties and Non-GAAP Financial Measures. This quarter's MD&A, news release and unaudited financial statements can be found on our Web site at www.blackdiamondgroup.com, as well as the SEDAR Web site. Dollar amounts discussed in today's call are expressed in Canadian dollars, and are generally rounded. I will now turn the call over to Trevor Haynes to review the quarter. Trevor?

Thanks, Tom, and thank you everyone for listening to the call today. Our results for the third quarter are reflective of the ongoing impact of dramatically lower commodity prices, as compared to one year ago. Revenue and EBITDA are up 30% and 44% respectively. We reported a profit of CAD8 million for the quarter, or CAD0.19 per share. This was due in large part to the gain we recognized on the sale of our Construction Services operations to Northern Frontier, which we announced in July. Our capital plan for the full year of 2015 remains unchanged at 50 million, of which 49 million was either spent or committed as at September 30, 2015. The bulk of this CapEx was expended in the first half of this year. This slide illustrates utilization within our Structures business unit, which contains our Western Canadian workforce accommodation offering, and our North American space rentals offering. Structures is our largest contributor to earnings. Asset utilization and managed beds have declined in workforce accommodation and logistics, which have borne the brunt of weak pricing across almost all commodity classes. The energy market in Western Canada remains extremely weak, with very little forward visibility. While Black Diamond's space rental platform has certainly been affected by the general malaise of Western Canada's economy, it is benefiting from its industrial and geographic diversification, and continues to see strong demand in the United States and Eastern Canada. I'll ask Mike to go into more detail about the financial results across our divisions for the quarter. Mike?

Thanks, Trevor. As you can see from the chart on Slide 5, much of the decline in EBITDA was related to our Structures business unit, which continues to be impacted by lower utilization as a result of the significant decline in energy prices. Our Logistics division EBITDA was down 34% from a year ago due to a 19% decrease in average beds under management, a 4% decrease in occupancy levels, and rate concessions tied to the previously announced contract extension. Despite these reductions, we have maintained our EBITDA margin rate in Logistics through aggressive cost controls. Energy Services EBITDA was down year-over-year, as low energy prices continued to result in lower rates and lower utilization. It is also worth noting that last year our Energy Services business unit benefited from demand related to ongoing flood relief initiatives in Alberta. International results were also lower year-over-year due to ongoing headwinds in commodity prices that Australia's resource sector is currently facing. Administrative costs were down slightly year-over-year due to lower costs across most categories, offset slightly by higher occupancy charges due to the storage of units. I'll now review the key financial metrics on the next slide. As Trevor pointed out, we reported a profit of 8 million for the quarter due to the gain we recognized on the sale of our construction services operation, which offset what would have been a slight loss for the quarter. Funds available for dividends decreased by 33%, due primarily to decreased activity levels, which meant that our payout ratio was 43% for the quarter, compared with 32% a year ago. Now, despite the decline in EBITDA on a trailing 12-month basis, our net debt to EBITDA ratio remains below two for the quarter. As you can see from our historical and year-to-date cash coverage charts, 2015 is actually trending better than 2014 and 2012, in terms of the relationship between EBITDA and calls on cash. That said, to maintain our financial flexibility, we believe it is prudent to lower our monthly dividend from CAD0.08 per share to CAD0.05 per share. This will reduce our outgoing cash flow by approximately 15 million per year, and ensure a sustainable payout ratio. This will also allow us to continue to pay down debt, conserve capital, and ensure that we are positioned for market opportunities as they arise. Now, with that, I'll now turn the call back over to Trevor.

Thanks Mike. Contracted forward revenue shows a 36% reduction year-over-year on a consolidated basis. The vast majority of this can be attributed to normal contract aging, and the reduced volume of new contracts, with longer term commitments. We've also announced that as part of our ongoing efforts to reduce costs, and strengthen our competitive position, we will reorganize our North American business units into three principle operating platforms of scale as of January, 2016. Black Diamond Camps and Lodging, we'll combine the existing workforce accommodation operation from the current Structures business unit, and the Lodging services business from the current Logistics business unit. BOXX Modular, our diversified space rentals business, we've broken out separately from the current Structures business unit, and include the Canadian and U.S. operations. Black Diamond Energy Services will incorporate the U.S. well site operation, which was previously included in the Structures business unit. The International business unit will remain unchanged. For more information, please see the Who We Are section of this quarter's MD&A. We will report under this new structure beginning in the first quarter of 2016. Prior to reporting, we will provide investors and analysts with our re-segmented results for 2015 to help with their analysis. We announced, today, a preliminary 2016 capital spending plan of CAD25 million, consistent with prior years. The majority of this will be spent on growth capital, with approximately 3 million spent on refurbishment and capital maintenance. Growth capital requirements are expected to be primarily for the space rental suites in Ontario, and in support of our growing U.S. business, which now includes Southern California, in addition to Texas and Florida. Space rentals in these regions benefit from broad exposure to multiple industrial segments. The 2016 capital plan will be generally non-speculative, and support our overarching strategy to diversify our platform. Despite the challenging environment in Western Canada and Australia, Black Diamond's business platform continues to generate positive cash flow from a diverse array of assets servicing multiple industries and geographies. We are streamlining our operations, reducing costs, and adjusting our payout ratio, while continuing to grow our space rentals platform to ensure our business remains strong, and well-positioned to respond to opportunities as they arise. With that, I'll turn the call back to Tom.

Thanks, Trevor. As in the previous quarters, we will ask participants in the question-and-answer portion of today's call to limit themselves to two questions before re-queuing. Operator, we are now ready for the Q&A session.

Thank you. We will now take questions from the telephone line. [Operator Instructions] The first question is from Dana Benner. Please state your company name before proceeding with your question.

Hi, good morning, Alta Corp Capital. I wanted to start on the issue of pricing, and I was a couple of minutes late joining, so I apologize if you addressed it, but it looks like your pricing, or at least realized revenue per bed didn't change that much in the Structures. So it was more of a volume issue. So maybe if you could just address trends there, because it may be contrary what many investors are thinking about this space right now?

Yes, the bed rate would be through our Logistics business unit. Steve, why don't you touch on it?

Yes. Our managed beds are down from the last quarter, but our margins are holding, and our rates are relatively unchanged. It's just the number of managed beds that's changed. Occupancy, as a percentage in the camps is pretty flat.

Okay. Well, that's great. So I guess my second question is on the issue of impairments or lack thereof, we have been seeing it so widely across this space, not just camps, but oil field services generally. So maybe address the issue of impairments, and what is the lack of it within Black Diamond suggest about your fleet?

Dana, Toby Labrie here. I'll take that one. We've taken a critical look at our business and our asset in the current environment, and we determined that there is no impairment. So we'll continue to reevaluate that. But based on our current look at the market right now, we believe our asset values are well supported.

Okay. Well, that's great, I will turn it back. Thank you.

Oh, sure.

Thank you [Operator Instructions] The next question is from [indiscernible]. Please proceed.

Hello guys, thanks for the call. Could you talk a bit about utilization versus the unutilized equipment? The unutilized equipment mostly back in Black Diamond yards or are there any property that's on –- any assets that are on customer property that are awaiting better time or better renewal expectations?

It's Troy here. If I understand your question correct, is in terms of non-utilized assets, where are they situated. A portion of our assets are still sitting on our client's property. And that's with an indication that without commitment in place, that there is the potential of turning those assets back on at some point in time. It's just that they're hesitant to make any kind of commitments right now. And then, yes, there are some other assets that have been returned back to our yards or some other locations that we've found space for.

Could you give a sense of -- I mean I see the utilization rates are across the board, say 40, 50, I guess 27 to 67. But could you give a sense of what fraction is back in your yards, just a rough sense.

Just so I understand the question. Mike Lambert. You're saying, if our utilization rate is 50%, where are the other 50% of the assets? And how much of that is still on site versus how much is in the storage? Is that what you're asking?

Correct, yes.

It differs by the business unit. So, if you look at our camps business, in our Structures business unit, there is a reasonable percentage of unutilized assets that are on customer location. And as Troy pointed out, the anticipation is with the return on activity, those assets would be re-contracted at that particular location. And in some areas that can be 50% of the unutilized assets are actually on location or close proximity to those location. The balance of those unutilized camp assets would be in our various storage yards in the regions we operate. If you look at our space rentals business, and our energy services business, it's a more volume business of assets coming and going. And so we have a network of yards or terminals that typically house those assets when they're unutilized. And so, lower percentage of unutilized assets in those two businesses would be sitting on customer sites.

All right. I see BC Hydro Site C seems to be progressing. Is there anything to do there? Have you guys -- are you making bids or how is that prospect looking? And is that included in your projections or your CapEx for next year?

BC Hydro, there is demand for equipment there. The main camp has been awarded, and not to Black Diamond. But it was on a sales basis which is slightly different than our typical offering, which is for rental turnkey operations. But certainly there's a whole panel of projects in various stages of feasibility or front-end engineered design or near execution that we follow on a regular basis as we pursue the markets that we operate in.

Great. Now, I'll jump back in the queue.

Thank you.

Thank you. The next question is from Jason Zhang of Cormark Securities. Please proceed.

Hi, thanks. Just wondering if you guys could give us a little bit of color around how much BOXX Modular would've made up of Structures in the quarter.

Do we have that, Troy?

I have that. So, Jason, it's CAD21.2 million year-to-date, and for the quarter, Toby, do you know what…

That would be EBITDA, right?

Yes, that's EBITDA. That's what you're looking for, Jason?

Yes, and then for the quarter?

Proceed to your next question, and I'll have it for the quarter in a moment here.

Sure.

Jason, did you have a second question?

Sorry. Yes, and then if you guys could talk a bit about -- I know you don't like to give too much forward guidance, but if you could kind of help us think about where utilization levels might go from here? I know that in the drilling space people are talking about a very early kind of Christmas breakup. Is that something you guys are seeing as well?

Well we -- as you know, we don't give guidance. The environment is very difficult right now, given that capital expenditures from our major customers are significantly lower than a year ago. We do have various pockets of activity related to what's happening in those resource sectors, so Northwestern Alberta, Northeastern BC is probably one of the stronger areas for energy services right now. And I say stronger relative to the environment that we're in. We would anticipate that it would be a softer winter drilling season. I think that's fairly common or a consensus around town here. When we move over into the other businesses, less short term volatility in camps and lodging, so our near-term wouldn't change dramatically from current. And then BOXX Modular, we think in markets outside of Western Canada we're seeing some reasonable strength in those areas where we might be biased to improving utilization characteristics. That would include the U.S., Central Canada. And we're also seeing some moderate improvement in the Australian market, which is coming off a very low bottom right now.

Mike, I'd want to just remind that also, when it comes to the camps division or the space rentals operations, they do contract month-to-month. So just because of the Christmas season, if you will, they would still maintain their utilization. It would be only those ones that would be on a day rate that would be affected by that, just the actual Christmas season.

All right, great.

Would impact Logistics and energy services.

All right. Okay, thanks guys.

Jason, that EBITDA for BOXX for the quarter was about 6 million. I'll circle back with the exact number.

Okay. Thanks a lot guys.

Thanks.

Thank you. The next question is from Jon Morrison of CIBC World Markets. Please proceed.

Good morning all. Just to follow on Dana's question. How do you think that the average revenue per utilized bed day will change in 2016 based on your contract renewals to date?

We're not giving guidance into next year, and certainly not going to touch on -- trying to take a stab at how pricing changes into next year, Jon.

Okay. Can you give any broad strokes for how it's changed in the last six months, in terms of customers either giving lower duration or what they're asking for if they're re-contracting?

Certainly, and we think we've talked previously in quarters of how the customer's view -- or customer's ability or desire to lock in to longer term commitments has changed. And so the dialog has changed accordingly just to recognize the environment that we, and our customers are operating in. And so the renewals have been shorter duration or we have customers who are overholding, and simply rolling on 90-day extension terms. And so that has changed meaningfully since a year ago or prior two. So the ability to garner long renewals is difficult in this environment. And so where we see a contracting of the revenue under contract on a forward basis, we're quick to point out it doesn't necessarily mean that all of those facilities become unoccupied or returned back to us. Part of it is just a recognition that the replenishment of that contracted stream is reduced also by the length of term customers are willing to sign.

Jon, you've probably noticed in our commentary, that we've maintained our margin despite that. And that's just through regressive cost control.

Okay. Can you give any more color on how you arrived at the new dividend? And how you guys define sustainability longer term? And to Mike's point earlier, you guys have lots of cash flow to cover it. So how did you arrive at the new number, and what's the key driver to get you there?

Yes, why don't I take that? This is Mike. One of the more important elements that we talked about in our commentary, and actually in our press release was we wanted to bring it to a sustainable level. And that would give -- would give consideration to the strength of our balance sheet, which remains strong, also the opportunities that we see in front of us. And we wanted to return to more traditional levels in terms of our payout ratio. You took our current CAD0.05 a share, and if that were to be paid in the third quarter, our payout ratio would be at about the 27%, as opposed to the payout ratios that we disclosed in our quarterly. And that returned us to a more traditional level of payout ratio. So sustainability is essentially what we looked at in terms of getting it down to a CAD0.05 per share.

So basically, in line with historical metrics on a percentage basis of cash flow is right way to think about it?

Yes, the payout ratio.

Yes, generally, but we also look at the dividend as -- we've never had a precise formula, Jon. And nor do we have a prescribed range. What we've always looked at is the competition for capital with our growth CapEx, the environment we operate in. And the ultimate aim for the management team and Board here is to ensure that we've got a very stable and viable business when reviewed in the context of the current operating environment. And I think that's what was most focused on in the discussions over the last couple of quarters with regard to the environment, the forward visibility, and where the dividend fits into the Black Diamond.

Can you comment on what the secondary market looks like for asset disposals? That's been of the idle units within your fleet, are you looking at remarketing them on a sales basis at this point?

We've always been engaged in the secondary market, and we view the resale of the asset as part of the return lifecycle. What we find though, Jon, is that in periods of time where there's less demand for new assets, there's also less demand in the secondary market, so secondary market has been quite this year. That said, we have continued to have a modest amount of asset sales through the year. And we think that continues into next year, despite the weaker commodity market. Typically, the secondary market tends to be various segments of resource extraction, whether it's mining in very remote places or processes that require the capacity for a much longer period of time than rental would make sense for.

Last one just from me. On the BOXX side, can you give an idea how much of that business is weighted towards oil sands or oils, or oil and gas, in general, at this point?

I don't have -- it's Troy here, I don't have the exact percentages broken out here. Obviously, the waiting is a little bit higher in the Western Canadian market, but when it comes to our operations in Eastern Canada and down in the U.S., I would say it's a very low percentage.

Appreciate the color. I will turn it back.

Thanks.

Thank you. The next question is from Greg McLeish of GMP Securities.

Hi, guys. I just wanted to drill down on John's question, just on asset sale, could you maybe quantify on a year-to-date basis what the asset sales were and compare that to the same period last year?

Yes, John. It's Toby here. We have CAD4.5 million worth of fleet sales for the year, and that compares to relatively high fleet sales for the year last year and -- of almost 19 million versus 20 million that there was one very large sale last year in Q1 that made up a good portion of that. I will give you a little bit of context, and as far as the -- in Q3 we saw CAD1 million worth of the 4.5 that we had for the year. So, it's trending down slightly, but asset sale tend to be lumpy along.

Historically, I know they tend to be lumpy, but historically there -- is there some sort of the 10 million on average a year that you do, and 4 million is a low year and 19 million the high year?

Yes. That's -- if you look at our historical level, that's relatively accurate statement.

It can be quite variable and it will depend on what are the asset sales in the Camps segment, obviously it's a lot -- it's not as common on the camp side, so when you do see a big spike it often times is because of the camps, whereas it is a little bit more consistent in the BOXX Modular, the space rentals platform, but the numbers -- there maybe more of them, but they are a lot smaller dollar amount.

Great. And just on your G&A for the year, I mean you have -- you did have a -- what is the total severance costs so far year-to-date, and what type of savings are you expecting to derive from those costs?

Great. It's Mike. Severance costs are not baked in the current year. We do continue to focus on costs. It's interesting. I will give you a few standbys [ph]. Our headcount year ago was 400ish. They're currently at about 300. A lot of those are actually in our margin, because they're operating. Our travel and entertainment trends just last month was less than half of what it was a year ago. We continue to focus on reducing costs, wherever we can to maintain our margins, but you won't see that in SG&A. Our SG&A, you will find has been tracking about 10% or 11% less than last year, we continue to track at about that level.

Great. I will get back in the queue. Thanks, guys.

Okay.

Thanks.

Thank you. [Operator Instructions] The next question is from Jeff Fetterly of Peters and Company. Please proceed.

Good morning everyone. First question on the workforce side; so utilization in Q3 at 55% was a historical low, what trend do you see there in the near-term? Is that the number you think could go lower?

Well, anything is possible; lower or higher. In the short-term, do you want to touch on that?

Yes…

Yes. In the short-term, we've got little bit of visibility that it's in a relevant range, 3%-4% up or down. But then going -- looking out too much further into 2016 is very hard to do, because it's hard to figure out what's going to go on and how long these market conditions are going to continue. Many of our larger oil and gas customers have not said that their CapEX budgets yet, or where they are looking at some potential development. They are saying that the decisions will be late this year outside of their current capital plans or even into early part of 2016. So, it makes it difficult prior to having visibility from major resource developers on specific project to forecast the take up of assets beyond what's currently in place and operating.

Our core camps are in fortunately in active areas -- are seemingly active with our major clients. So we do have a baseline of activity that we feel confident that will remain -- it's new camps and new positions that's the issue at this point.

Just to clarify that; so when you say three or four percentage points, that's a band within the 55% level that you are at in Q3 or currently?

Yes. That is correct.

And sorry same question on the Logistics side. So Steve, your comment earlier about managed bed count declining how much risk do you think there is that the managed bed count falls further?

It's pretty stable from what we see right now. It will actually have a bit of an uptick in Q4, but can't comment going into 2016, but I am hoping we are the bottom.

But do you think number trends up from a seasonal standpoint in the winter?

Yes, definitely.

Okay. So, the second piece, you reference Mike couple of minutes ago around the costs cutting side. So SG&A, do you expect in dollar terms that 11 million or so range is consistent going forward and I guess the second part of that is at what point you look at sort of more significant cost cutting measures within the business given the weakness you are seeing now.

Yes, your 11 million, just to clarify for everybody else, it's 11 million per quarter, and so you are saying at a run rate of about 11 million, do we see that continuing? We are not giving guidance but at the current levels, we could see it continuing. In terms of costs cutting, we actually do continue to focus on costs. Part of our costs cutting initiative was at looking at things that we purchase, and at a lower level of activity of course you don't get the gains on those purchases. But a great example, we had a reverse auction on mattresses, mattress purchase today would costs us 40% less than they would have a year ago, and that's from this costs cutting initiative. We are not buying a lot of mattresses today, and so we don't get those gains. But we do continue to focus on costs, and I said earlier, we are maintaining our margins in Logistics partly through maintaining our margins by reducing our costs when we get a lower rate from our customer. But I think 11 million per quarter is a fair amount to model going forward.

And sorry, Tom, violation rule, but one more follow-on to this; your definition earlier of payout ratio, so when you say returning the dividend to historical levels, what we see is about a 25% to 30% payout ratio on a cash flow basis, is that consistent with the comments you made earlier?

It's interesting, but one of the things we want to try and avoid -- I was trying to avoid by saying just taking a look at our current quarter. One of the things that we are trying to be careful to avoid is that you use that large dividend to try and get guidance for next year. That's not our intention at all. All we are saying is that we are reducing the dividend to a level that's very sustainable, and I'm not suggesting, Jeff, by the way you are trying to guess next year's guidance, but I am just saying, we are trying to be careful not to signal at all next year guidance.

Okay. So, just to define you -- to better define your comments, like, get back to historical payout ratio, is that in the context of the cash fee generated by the business today you are referring to?

Yes, it is -- quarter to get to a level where we continue to pay down debt even in a time like this.

Okay, great. Thanks, I will turn it over.

Thank you. The next question is from Ian Gillies of First Energy. Please proceed.

Good morning, guys.

Good morning.

I was just curious with the utilization drop in the accommodations business quarter-over-quarter, whether any of that was tied to a reduction and utilization at Sunday Creek or whether it would be utilization rate, and that facility remains high field.

From an outside perspective, there has been no change in utilization at Sunday Creek. On an occupancy basis, in our Logistics business, Sunday Creek is experiencing very high occupancy.

And with respect to a renewal, is that still an outstanding item on the to-do list?

It fits into some of the comments we're making with regard to our customers and their decisions around capital spending, et cetera. However, that area we anticipate will be active in 2016 due to a number of turnarounds -- activity around numerous projects. The site is very strategically located in close proximity to several of the more viable FID [ph] projects. Do you want to touch on it, Steve?

Well, part of the camp is under contract. So, midway through next year, and we are confident that our negotiations with various companies on this camp will hopefully fill it up. We're quite certain that there will be demand in the area in this camp.

We fill it up after current contract.

After current contract.

Okay, perfect. Thanks very much guys.

Thank you.

Thank you. There are no further questions registered at this time. I would now like to return the meeting over to Mr. Trevor Haynes. Please proceed, sir.

Thank you, and thank you for participating in our third quarter conference call and webcast today. We continue to believe that Black Diamond has certain strengths that set us apart from our competitors. We have a strong balance sheet. We're generating free cash flow, and continue to be disciplined about where we invest new growth capital. We're actively pursuing market opportunities, and our modern rental fleets provides us with tremendous operating leverages when our natural resource end markets improve. We look forward to speaking with you on our next call next quarter. Thank you.

Thank you. The conference has now ended. Please disconnect your lines at this time. Thank you for your participation.